What is the impact of raising the minimum wage? Lessons from Spain
The increase in the minimum wage clearly contributes to reducing wage inequality, although the evidence regarding its impact on hiring and employment remains inconclusive.
This article is part of the State of the Spanish job market 2025 report by InfoJobs and Esade.
In February 2025, the Spanish government approved an increase in the minimum wage to 16,576 euros, which is distributed in 14 payments of 1,184 euros each. This is undoubtedly excellent news for those who earn the minimum wage. In Spain, just over 10% of employees will benefit from this decision. The increase in the minimum wage has not been without debate, as the agreement resulted from negotiations between the unions and the government, without the involvement of business associations. Furthermore, even within the government itself, there were differing opinions regarding the taxation of the new minimum wage under the Personal Income Tax (IRPF).
The analysis of the increase in the minimum wage must be approached with the appropriate time frame in mind. In 2008, the minimum wage meant a monthly payment of 600 euros, which by 2018 had increased to 735.9 euros, and between 2018 and 2025 grew to the current 1,184 euros per month. In other words, between 2008 and 2018, it rose by 22.7%, and between 2018 and 2025, it has increased by 60.88%.
Beyond the numbers, there are two key conclusions. First, Spain is a country with significant wage inequality: according to the latest Wage Structure Survey by the National Statistics Institute (with 2022 data), the average salary was around 27,000 euros, although 50% of employees earned less than 22,383 euros. The increase in the minimum wage clearly helps reduce wage inequality, and from this perspective, the increase is positive news. Moreover, the Spanish economy has suffered high inflation rates in recent years, which have eroded the purchasing power of many families. The fact that lower-income workers see their wages rise above inflation helps prevent this loss of purchasing power and contributes to greater social cohesion.
Effects of the minimum wage on hiring and employment
However, the debate around the minimum wage is not straightforward. There is no doubt that raising it directly increases business costs, which could lead companies to reduce hiring due to higher labor costs. Empirical evidence on this point is inconclusive. First, because it is not the same to analyze the impact across different sectors, in small versus large companies, or among different groups of workers. The impact of the minimum wage increase also varies for younger employees versus more experienced ones, or depending on education levels.
If the increase in the minimum wage has reduced employment, it has not been particularly significant
One major effort to analyze how raising the minimum wage affects employment was a study by the Bank of Spain—an institution with a strong reputation for its technical analyses—focused on the increase that took place in 2019 (when it rose from 735.9 to 900 euros). The study concluded that a 1% increase in the minimum wage led to an employment reduction of approximately 0.4% for the affected group. In short, the 22.3% increase in the wage reduced full-time employment by around 0.15%. If the increase in wages has reduced employment, it has not been particularly significant.
Productivity and competitiveness
In the discussion about how to increase overall wealth and the average salary per worker—not only for those earning the minimum wage—it is important to emphasize that the key factor is productivity. When the value generated per hour worked increases, and if the right market conditions are in place, wages can rise more easily. The challenge for the Spanish economy is stagnant productivity, which is approximately 18% lower than the EU average.
In conclusion, raising the minimum wage is good news for building a more equal society, but caution is needed regarding its impact on job creation, especially for small businesses and in more competitive markets, as well as its effects on employment for young people with lower levels of education. And of course, it is essential to push for reforms and measures that foster a more productive and competitive economy.